740 and 25% are the new magic mortgage numbers

by Victor Lund on February 8, 2011

The Frank-Dodd bill was designed to insure that loan originators to have any financial interst in the terms or conditions of a loan. But in a policy change today, Fannie and Freddie announced changes in the terms and conditions of a loan that modifies their financial interests.

Thats right, the Government Sponsored Enterprises (GSEs) just did exactly what other loan originators are denied from doing by law. Specifically, charge higher interest rates for higher risk loans. If you do not have a credit score of 740 or better, or put down 25% of the purchase price – you will pay higher interest rates on your loan. Be sure to let agents know about these new limits so they can inform their clients.

What is funny about this is that the GSEs were designed to help first time home buyers, and low income home buyers – few of which have credit scores above 740 according to this article. Today, the GSEs are underwriting more than 55% of all home loans.